Q4 2020 Kraton Corp Earnings Call
Thank you for standing by the conference will begin momentarily until such time, you will hear music. Thank you and please continue to standby.
Okay.
[music].
Good morning, and welcome to the Great on Corp, fourth quarter reported Wednesday earnings Conference call. My name is still and I'll be your conference facilitator. At this time all participants are in a listen only mode. Following.
Following the company's prepared remarks, there will be a question and answer period.
If you'd like to ask the question on please press star one on your touch tone phone did they go on for instance, being recorded if you have any objection you may disconnect at this time.
I will now turn the meeting over to Mr. Gene Shiels director of Investor Relations. Sir you May now begin.
Thank you Dale good morning, and welcome to the Great on Corporation fourth quarter 2020 earnings call.
With me on the call. This morning on Kevin Fogarty, <unk>, President and Chief Executive Officer, and <unk>, <unk> Executive Vice President and Chief Financial Officer.
A copy of the fourth quarter 2020 news release with the related presentation material. We will review. This morning is available in the Investor Relations section on our website.
And before we review the results for the fourth quarter I'd like to draw your attention to the disclaimers on forward looking information and the use of non-GAAP measures included in our presentation and in yesterday's earnings press release.
As of year like no other given the unprecedented challenges posed by the global COVID-19, pandemic, especially the adverse impact on demand in many end markets and geographies. We are extremely pleased not only with our financial results for the fourth quarter and the year overall.
But in terms of how our entire organization responded to on altered operating environment.
With the safety of our employees, our customers suppliers and the communities in which we operate our top priority in 2020. We responded quickly early in the year with enhanced safety protocols in our operating locations and we successfully transitioned to a remote work environment for a significant number of our employees around the globe I.
I am proud of the way our organization has continued to work almost seamlessly to preserve business continuity and the efficiency of our supply chains. So that we are able to continue to serve the needs of our customers.
This past year was also a good year to prove the resiliency of our business model and the benefits of our broad end market and portfolio diversification.
COVID-19 had an adverse impact on global demand in the first half of 2020 in particular as evidenced by weakness in end markets such as automotive oilfield in consumer durables, we saw favorable demand trends that translated into growth in other areas such as adhesive businesses in medical and personal care applications and in paving and roofing Mark.
Yes.
As a result, despite demand disruption associated with COVID-19, and 2020 create on delivered growth in sales volume for both our polymer and our chemical segments.
As a further measure of the resilient performance of our core business, excluding the results for the <unk> business, which we sold in the first quarter of 2020.
Adjusted EBITDA for 2020 would have been down approximately 5% compared to 2019, despite a challenging market environment associated with COVID-19, particularly in the second quarter of 2020.
Of critical importance, while we are focused on navigating the near term challenges of 2020, we continue to position creates on for the long term over the past year, we successfully advanced our sustainability objectives, which are broad based and include initiatives such as responsible procurement and supply chain improvements enhanced operational efficiency advancements and diversity.
And inclusion as well as Biobased certification and commercialization of products that address the world's growing need for sustainable alternatives.
Key examples of these products are a revolution family of low color rosin esters, and our circular plus polymer technology that can facilitate expansion of the circular economy via processing more post consumer plastic waste streams.
And with our ongoing commitment to R&D, we have now achieved commercialization of our <unk> technology in automotive with the Blue with excuse me with the Buick <unk> launch in China, and we look forward to further translation of this technology into other automobile or automotive applications and I'll speak more about our forward vision and how we are.
Claiming our strategy on sustainability and just a few minutes.
On a more tactical front in a year like 2020 cost management and strengthening of our capital structure, where paramount during the year, we took action to deliver approximately $20 million of run rate cost savings and we expect to deliver additional cost efficiencies. This year the sale of our careful ex business in the first quarter of last year unlocked significant value accretion for our shareholders and it contributed.
To a significant delevering of the great on balance sheet, improving our overall leverage profile.
We maintain a healthy liquidity position throughout the year and were able to refinance our ABL facility through December 2025, while reducing pricing. In addition, we successfully refinanced our 7% senior unsecured notes, reducing the coupon to fall on a quarter percent going forward. This will provide for meaningful cash interest savings.
I'll now happily turn the call over to our executive Vice President and Chief Financial Officer, <unk> will provide more specifics on a percentage of financial results for the fourth quarter and the full year in 2020 agonists, Thanks, Kevin and good morning, everyone.
As we turn to slide five I'll review the financial highlights of the fourth quarter of 2020 as Kevin pointed out we're very pleased with our results for 2020 on more specifically to this discussion our fourth quarter results.
As in the third quarter of 2020, we continued to see sequential recovery in demand from the low levels in the first half of 2020 associated with the adverse impact of COVID-19.
The improved demand fundamentals continued in the fourth quarter, providing for solid financial results as we closed out the year.
In terms of specific financial highlights fourth quarter 2020 revenue was close to flat down $1 $8 million versus <unk> 19.
This was largely a function of the disposition of our careful ex business earlier in the year, which have contributed approximately $45 million of revenue.
Therefore, excluding care reflects sales grew approximately 12% over the same period in 2019.
The relative stability in margins and higher sales volume in both our polymer and chemical segments contributed to fourth quarter 2020, adjusted EBITDA of $54 4 million, which was up $5 $4 million on nearly 11% compared to the fourth quarter of 2019.
Excluding the <unk> EBITDA contribution in the fourth quarter of 2019, adjusted EBITDA associated with the polymer and chemical businesses was up approximately $21 million versus the year ago quarter.
From a segment perspective, we delivered solid fourth quarter results in both our polymer and chemical segments polymer segment adjusted EBITDA for the fourth quarter of 2020 of $36 million was up three 5% versus the year ago quarter and excluding care reflects would have also been up.
Up $17 million compared to the fourth quarter of 2019, while adjusted EBITDA for the chemical segment was up 22, 3% compared to the fourth quarter of 2019.
As Kevin just indicated during the fourth quarter, we continue to focus on strengthening our balance sheet through debt reduction and improving our capital structure.
During the quarter, we reduced consolidated net debt, excluding the effect of foreign currency by 41 $5 million.
During the quarter. We also took proactive steps to enhance our financial flexibility, we refinanced our ABL facility extending the maturity to December of 2025, and reducing the cost of borrowing.
In addition, we completed a highly successful senior unsecured bond offering effectively replacing our form of 7% senior unsecured notes with four in the quarter senior unsecured notes due December of 2025. This refinancing will result in annual interest savings of over $11 million.
We therefore ended the year with significant financial flexibility and strong liquidity position as evidenced by cash on hand of approximately $86 million and availability under our ABL facility of approximately $191 million.
I will now move to slide six for a review of our polymer segment results.
The polymer segment booked solid financial results in the fourth quarter.
While revenue was down $17 $7 million versus Q4 of 19. The decrease is mostly the result of the sale of the <unk> business in Q1 of 'twenty.
Adjusted for carrier <unk> revenues would have been up approximately $28 million versus the same period last year.
As I just noted polymer segment adjusted EBITDA for the fourth quarter of 2020 was up three 5% even without the contribution of <unk> to our fourth quarter 2020 results.
Excluding the <unk> contribution in the fourth quarter of 2019 polymer segment adjusted EBITDA would have been up $17 million.
<unk> results are primarily driven by higher sales volumes, which were up 6% compared to.
Q4 of <unk> 19, which included the results from the <unk> business.
Specialty polymer sales volume was up 15, 6% compared to the fourth quarter of 2019 with demand recovery in all regions and the recovery in key end markets, such as consumer durables and automotive applications.
Performance products business also saw fourth quarter 2020 sales volume growth of seven 4%, principally driven by stronger sales into paving and roofing and adhesive applications.
Adjusted gross profit for the polymer segment was $767 per ton in the fourth quarter and this compares to $801 per ton in the fourth quarter of 2019.
After which included results for care reflects.
We also saw a 150 basis point improvement in polymer segment adjusted EBITDA margin at 14, 2% compared to 12, 7% in the year ago quarter.
Looking at full year results for the polymer segment for the full year 2020 polymer revenue was $857 6 million a decrease of $195 $4 million compared to 2019.
The revenue decrease however was largely driven by the sale of the <unk> business.
As well as lower average selling prices associated with lower average raw material costs, partially offset by higher sales volume and core business in our core business.
Although reported sales volume was down one 4% versus the prior year. This reflects the disposition of care reflects excluding carrier flex sales volume would have been up five.
595, 5%.
Specialty polymer sales volume was up five 2% compared to 2019.
Whereas demand trends in China, and broader Asia weakened significantly in the second half of 2019, we saw improving demand as 2020 progressed.
As a result of increase in specialty polymer volume is largely associated with demand recovery in Asia.
For performance products 2020 sales volume was up two 2% compared to 2019, driven by higher sales into paving and roofing and adhesive applications.
Polymer segment adjusted EBITDA for the full year 2020 was 167 5 million, although down $27 million versus full year 2019, the sale of carefully ex has a net impact of approximately $44 million on a period to period decrease.
Excluding <unk> adjusted EBITDA would have been up 18% or $23 6 million compared.
Compared to 2019 evidence of the strong performance of our core business in 2020, including the benefits of cost discipline.
As we have discussed throughout 2020, we have seen notable margin stability in our polymer segment for full year 2020. The segment adjusted EBITDA margin was 19, 5%.
An increase of 160 basis points compared to the 17, 9% in 2019, which included a full year of contribution from the careful ex business.
Lastly, adjusted gross profit in 2020 was $903 per ton.
And this compares to $969 per ton in 2019, which included the contribution of <unk> reflects the impact of the sale of care reflects on adjusted gross profit is approximately $100 per ton.
Now turning to slide seven for a look at the chemical segment results.
<unk> segment revenue for the fourth quarter of 2020 was $192 million up $15 $9 million versus Q4 of 19 sales.
Sales volume was up 23% compared to the year ago quarter, including higher opportunistic sales of raw materials or bid.
With different pricing sales volume for adhesive was up 9% compared to the fourth quarter of 19 on higher sales of rosin esters, reflecting strong adhesives demand reflective.
Relative to recent market needs.
While performance chemicals sales volume was up 25, 6%, reflecting higher opportunistic sales of raw materials sales volume in tires was up 27, 2%.
On versus Q4 of 19 with healthy demand driven by growth and innovation applications.
On the fourth quarter 2020 adjusted EBITDA.
For the chemical segment was $23 $9 million with an associated margin of 12, 4% and this was up $4 $4 million compared to the $19 5 million in the fourth quarter of 2019 in which the associated margin was 11, 1%.
On a full year basis chemical segment revenue was $705 $6 million down $45 9 million compared to 2019.
The decrease was driven by lower pricing in the CST chain and lower average selling prices for rosin esters related to the oversupply of low cost hydrocarbon packet fires in Asia the.
The decrease also reflects lower pricing for the sofa upgrades, primarily due to the COVID-19 pandemic, partially offset by the revenue contribution associated with our opportunistic sales of raw materials.
Third to 2019 chemical segment sales volume increased six 8%.
Sales volume for performance chemicals was up nine 2% with opportunistic sales of raw materials, partially offset by lower sales of Copa until for derivatives that was largely due to market fundamentals, including the adverse impact of COVID-19, particularly in the second quarter sales.
Sales volume for adhesives increased two 7% and this was a function of robust rosin ester demand.
The sales volume for tires was essentially flat for the year as solid growth in sales volume in the first third and fourth quarters of 2020 was offset by a severe contraction in the second quarter demand as COVID-19 had a widespread impact on tire production and therefore demand for our products.
For 2020 as a whole the chemical segment reported adjusted EBITDA of $94 6 million down $37 8 million compared to $132 4 million in 2019 factors in the decline include lower average selling prices in the CST chain relative to the record levels of 2018 on the <unk>.
First half of 2019, lower pricing for rosin ester products as well as the lower sales of Telfer and total derivatives, resulting from market conditions, including the impact of COVID-19, and this was partially offset by higher sales of raw materials.
Slide eight provides a summary of our consolidated results for the fourth quarter and full year 2020.
For 2020 as a whole consolidated adjusted EBITDA was $262 1 million and this compares to $326 million in 2019, a decrease of $58 5 million.
However, more than 75% of the decrease or $44 million relates to the sale of the carrier flex business.
With the balance largely associated with the lower pricing in the CST and Tor chains, partially offset by lower raw material costs and higher sales volume in both segments.
The consolidated adjusted EBITDA margin for 2020 was 16, 8% and this compares to 17, 8% in 2019, which included care flex and higher average pricing in the CSD on tour change for the chemical segment.
For the fourth quarter of 2020 adjusted diluted earnings were <unk> 23 per share and this compares to adjusted diluting earnings loss of <unk> <unk> per share in the fourth quarter at 19.
For the 12 months ended December 31, 2020, we reported adjusted diluted earnings of $1 29 per share and this compares to $2 94 per share for the 12 months ended December 31 <unk> the.
The adjusted EPS decline is principally associated with the sale of the carrier flex business on the decline in the CSD and rosin prices.
Now turning to slide nine.
During the fourth quarter of 2020, we reduced consolidated net debt, excluding the effect of foreign currency by $41 $5 million.
On a full year basis during 2020, we reduced consolidated net debt by $541 $4 million, excluding the effect of foreign currency.
As we expect further debt reduction in 2020, we expect to achieve our leverage.
Target leverage ratio of approximately three turns this year 2021.
I will now turn the call back to Kevin for his closing comments Kevin.
Thank you Magnus.
As we have noted demand trends in both our polymer and chemical segments improved in the second half of 2020.
And while we remain mindful of the disruptive potential of COVID-19, thus far in 2021 market trends are encouraging and we expect our diverse end market exposure to continue to benefit benefit us in 2021.
Therefore, we currently expect to grow our core business of four 5% to 7% this year.
On slide 10, we provide an update for our near term outlook by key end use in terms of major geographic exposures in the Americas, We anticipate strong demand fundamentals with continued recovery in consumer and industrial applications, while in European markets. We currently see demand trends continuing to continuing to improve.
Over the course of 2020, we saw demand trends in China and broader Asia also continuing to improve thus far in 2021 economic activity levels have been very encouraging as China and broader Asia are key markets for our specialty polymers business, we enter 2021 and well positioned to address opportunities in these important growth markets.
In terms of end markets for 2021, we anticipate a continuation of solid demand for key applications that proved critical in 2020 and addressing unique market needs as highlighted in prior quarters, we have seen favorable trends in adhesive markets over the past year, driven by packaging demand and growth on e-commerce as well as other applications, such as masks and gowns on health care.
Markets.
In addition, we are also satisfied new market needs relative to COVID-19, and innovative HSBC grade manufactured at our facility in non U.
Taiwan plant is being used in face masks to improve where our comfort. In addition, with the development of vaccines to address COVID-19, our hydrogenated part product grades are being used in insulation gels that are critical in temperature control distribution of vaccines.
Now on a more traditional businesses, while still early in the year, we look forward to a favorable paving and roofing season and.
And further growth in automotive and consumer durable markets associated with further market adoption of innovation grades.
In our chemical segment, we are currently seeing favorable trends in all three of our major product categories of Telfer tour and our CST chain.
In addition for quite some time <unk> has been active.
And a participant in the growing global market for Biofuels and renewable diesel and we see opportunities to expand our role in these applications in 2021, while remaining committed to our existing customers as demand for Biofuels growth <unk> is well positioned with two refineries in the us on to refineries in Europe as this footprint enables us to participate as a glue.
<unk> supplier.
Moreover, we have proven expertise with all necessary certification requirements already in place, we have a strong and diverse CTO supply position and we have well established and proven supply chain capabilities with the ability to ship CTO and CTO derivatives as well as pitch from the U S into the European market.
Turning now to slide 11, our participating participation in the growing biofuel market is but one example of how <unk> is working to address the growing global demand and need for biobased renewable and sustainable alternatives.
<unk> has long believed that our future success is dependent upon sustainable business practices, and meaning societies needs for sustainable products.
We are committed to making a positive difference for all our stakeholders through safe compliant socially and environmentally sound operations, because we fundamentally believe that sustainable business practices are a prerequisite for meeting the expectations of all our shareholders and stakeholders alike today and into the future.
Our commitment to sustainability is not just founded in words on intangible evidence of our progress in driving sustainable business practices across our entire enterprise. This commitment as demonstrated through our membership in the American Chemistry Council of the European Chemical industry Council and our participation in responsible care and chemical industries World class standard for Hs and Es.
Management and performance excellence.
If you have not had an opportunity to review our sustainability report, which is available on our website I encourage you to do so I'm proud of the progress that we've made to date in advancing our sustainability objectives.
Turning now to slide 12 from our perspective, the global focus on sustainability intensified in 2020.
The world's needs are evolving and craton and society as a whole must rise to the challenge on.
Our goal is to be an admired sustainable supplier of innovation based solutions, whether it is through our chemical segment or our polymer segment.
We believe that sustainable business practices create value for our customers and all our stakeholders. We embrace sustainability is a value driver and it shapes our strategy as we move forward.
Of course, our commitment to sustainability is not a final destination on the journey and so we expect to continue to define long term objectives to safeguard our future.
As part of this process. We will also continue to identify short term tactics initiatives at every level of our organization that are critical to delivering our longer term vision.
Turning now to slide 13 through the groundwork we have already established we are well on our way on driving sustainable business practices throughout our organization as.
As a member of together for sustainability, we remain committed to responsible practices and continual improvement in procurement in 2020, we are awarded a gold rating by Echovirus in recognition of our progress in implementing systems to ensure responsible procurement.
In addition, we have adopted management systems that include policies and procedures relative to compliance labor practices and enhanced performance as it relates to <unk>.
With safety as our first core value specifically, we continually work to ensure the safety of our employees the communities in which we work and all our stakeholders, we have long embrace diversity as evidenced by the composition of our board of directors and in 2020, we adopted specific policies around the broader topic of diversity and inclusion.
Ensuring equal opportunities for all our employees.
On an operational level, we are well on our way to meet our greenhouse gas intensity reduction target of 25% by 2030, and we will continue our work to reduce carbon emissions and energy intensity throughout our manufacturing organization.
As we look downstream, we will continue to leverage the bio based nature of our chemical segment and our R&D capability as we develop and commercialized products that address our customers' needs for sustainable solutions. In this regard during 2020, we made solid progress in commercialization of key platforms.
On slide 14, one of these platforms that has garnered significant interest from our adhesive customers is our revolution rosin ester technology, which we believe has established the industry standard in terms of color and stability.
As a bio based offering and given its performance and product attributes revolution as a compelling alternative to hydrocarbon based <unk> for our adhesive customers.
Customer response has exceeded our initial expectations and given our positive expectations for global adhesive demand and our customers evolving needs for sustainable inputs. We think revolution is positioned for continued share growth.
Turning to slide 15, as you all well know societal sentiment with respect to hydrocarbon based materials and single use plastics continues to evolve and while it is true that our polymer segment utilizes hydrocarbon drive raw materials through the versatility and recyclability of our SBC chemistry, we are able to address growing.
Needs for sustainable solutions. One example is our circular plus technology, which is providing the industry with technology to facilitate growth in the circular economy by enabling more efficient recyclability of post consumer plastics waste streams.
As an additive in the processing of waste streams circular is an effective.
As effective as a compatible iser, allowing increased use of multi resin waste streams, providing broader use and and functionality as well as productivity.
And now on slide 16, our most recently commercialized innovation are injected molded soskin, our NSS technology.
We are extremely excited at this development as we've been working for some time to commercialize this technology that provides significant system level cost savings and large injection molded automotive parts, such as dash and door panels compared to slush molding processes.
Other notable features of IMS technology allow for lighter weight, recyclability improve haptics and look and feel.
And improved aging.
<unk> performance with reduced Boc omissions in order.
This technology has been commercialized in the Buick <unk> six in the fast growing Chinese market, we look forward to translation into other vehicle platforms in the future.
Lastly, given our continued enthusiasm for its potential in the fight against COVID-19, and other applications I would remiss in not acknowledging that we remain.
In the regulatory approval process for <unk>, while I don't have any specific update to provide at this time I can assure you that we have remained focused on both the opportunities under section 18 referred often too as the EPS emergency exemption and the broader section three approval, we look forward to providing specific updates as soon as they become available.
In closing, we enter 2021 energized by the solid performance we delivered in 2020, despite challenging market conditions are positive momentum as we closed the year has continued into early 2021 and as I said, we currently expect our base business. This year to grow 5% to 7% we are positioned to benefit.
From further upside in our various end markets and if the opportunity for further growth exists you know we will pursue it.
With those comments, we're happy to open the call up for your questions.
Dale can we can we move to the Q&A session. Please.
Sure.
Thank you so much participants we will now begin the question and answer session. If you'd like to ask any questions. You May press star followed by the number one.
Please mute your phone and record your name and company name clearly when prompted.
Name and company name is required to introduce your question.
Cancel requests you May press star two.
Our first question comes from Chris Scott.
From loop capital markets.
Sir Your line is now open you May proceed.
Yes, hi, good morning.
Juggling multiple earnings conference calls this morning. So if this has been addressed I apologize, but one thing I'm curious about is.
In the Pine chemicals business, you came into 2021 with some price increases.
<unk>.
On the table and then most recently you introduced.
On the across the board price initiatives, So I am curious if.
About the visibility regarding the traction on these price increases on the magnitude of the attraction is the is the effort here really just offset.
Some higher raw material costs, whereas there the opportunity to also capture extra margin.
Given what seems to be sort of bidding.
A healthier end market demand scenario vis vis probably supported by some alternative materials.
Some color around that would be helpful.
Sure Chris Thank you.
Well first of all indeed, we have.
<unk> announced.
Announced two price initiatives and I would certainly say that those initiatives encapsulate both the need to make sure that we're recovering any cost inflation that we may feel but as well the backdrop of our businesses as I used as I said in my commentary about all three product grades.
<unk> has had positivity reflects the fact that we're.
We're addressing that through our price initiative and.
We've often said in our chemical business a lot of the pricing is a combination of both.
Competitive factors within the pine chemical space as well as.
The very real price setting mechanisms and competitive factors in the interim materials space.
We're seeing certainly in the case of the inter materials.
Certainly inflationary pressure and though in that regard as well so our price increase initiatives certainly benefit from that backdrop.
Yes, Kevin I think you are referring to maybe theres, an updraft clearly on gum rosin.
Also hydrocarbons so.
The fact that.
And those are.
Our products that compete with tour so for the first time, we have.
Yes.
On a mile.
Visible evidence of trying to introduce pricing towards so I'm just wondering if that also underscores strengthening in demand for towards it really just the competitive set in terms of the pricing the market pricing dynamic.
I'm just curious because obviously it will be it will be helpful. For the overall economics of your refiners to be able to.
To produce more tour, if there's demand for it.
And our view absolutely it reflects increased demand trends for the <unk> molecule, including the derivative rosin ester.
And so yes that provides that positive impetus, but at the same time I'll also remind you that vegetable and low markets. The underlying vegetable on markets are certainly relevant when it comes to the price setting mechanisms that are Copa <unk>.
<unk> competes and that's also provided for that positive backdrop I spoke of just a reminder.
Okay, and then I did have also won.
Focused on by axiom.
<unk>.
Well.
Twofold really one to one.
State your you're suggesting that you're obviously.
Focused on the.
The section three section 18 approvals I guess.
I think it's.
It's public.
Knowledge that they are in the federal Register their day.
On application by Delta Airlines for the emergency use authorization it looks like for their hub in Salt Lake City and Minneapolis.
Use of this product and there was an open.
Comment period that concluded I think last night. So I'm just curious with that open comment period haven't concluded for that emergency.
Use requests if you're wondering if you have any color on how that process might play out from here in terms of timeline and if in fact that gets traction.
Sure, Chris and Mike I would just say that.
<unk>.
Don't mean to correct you, but the applications for emergency exemption actually come from the states.
And.
Obviously delta being the relevant partner with the states, but the state the applications are actually filed by the states themselves and you referenced two of the states I would also add debt. The all important state of Georgia, where the hub on Atlanta resides is also now a subsequent filer to that.
To that section 18 application.
But with respect to the process.
I think I've said all along net.
We have had very positive discussions with the EPA.
In the case of.
Our desire to.
To receive.
Full section three authorization for our new active ingredients <unk> and <unk>.
This is.
Any section 18, which we think is helpful. Obviously because of the urgency in the marketplace to fight COVID-19.
Is a good step forward towards that ultimate objective, which is the section three blanket approval for the active ingredient, but I would say that clearly the fact that it's one of those stories, where the bad news is we have a new active ingredients. So from an EPA perspective, they need to understand about it because the performance is certainly worth noting but on a same time too.
<unk>.
The fact that it is a new active ingredient in a polymer form that's what makes it truly novel and unique and we think is going to allow us obviously to.
To take advantage of this superb technology not just now to fight COVID-19, but in the future as well because we're thinking beyond just.
This one time and in our World is obviously pandemic.
Led priorities, we think it also has applications in the health care field and also on building construction.
On the public transportation referenced in this section 18 filing so it's a very robust process. We are undergoing and we're we're quite grateful for the level of cooperation that we received from the EPA because they are certainly.
In regards to their desire to see new compelling technologies coming to market, they've certainly done all they can through their their own obviously work processes.
The one follow up on that so.
This request from.
I understand from the states, but probably at the urging from.
Delta in this case and if this were to go through even under an emergency authorization. It seems like a strong testimonial for the relevance of this product in the intended use in this particular application but.
Like is it safe to say that this would serve as a testimonial maybe catalyze the greater likelihood of section three approval and and yes. It is there.
Does do you think that if in fact the.
<unk>.
The adoption for addressing Covid becomes reality if it if it helps the likelihood of this being a relevant product and some of the other.
Non COVID-19 opportunities that you address thank you.
Well, Chris I mean, it goes without saying that we wouldn't be pursuing.
Section 18.
Without a line of sight towards section three because of section two <unk> as we said is very specific to a specific application.
Our vision for where by accident, we think can be very beneficial to society goes well beyond that.
Now do I also believe that our section 18 is a good indicator of a section three well presumably yes.
It's not in the reverse would be a negative indicator I'm sure. So yes, I feel like it's a good step towards validation of the technology in the eyes of the EPA, but but again.
They have their process they need to work through and I'm just.
Fair to say that from my perspective, it's been a priority of them to to find a way to make this new active ingredient <unk> a reality to fight COVID-19 has certainly been a priority of EPA.
Thank you.
Thank you so much. Our next question comes from the line of Vincent Anderson.
From Stifel.
Your line is now open you May proceed.
Yes, thanks, good morning, and congratulations on the on the new HSBC application in automotive I know, it's been a long time coming.
I wanted to start on Pine chemicals. If my memory serves you historically had been pretty lukewarm on the prospect of CTO is a preferred feedstock under read too.
So I was just curious what has changed in the market that has maybe shifted your view there and how you are participating right now, whether it's selling tofu or selling excess CTO to other bio refiners.
Well.
We've been following this obviously for quite some time and it's just not as simple as just diverting certain volumes of Tulsa to a new customer base. There is also a qualification process, we need to go through and and.
So we view it as.
An extension of the <unk> platform and in every sense of the word I mean, the nice thing about our Tulsa platform as we've talked about it it's got already a very diversified set of of market alternatives that we serve and this just adds to that diversification. So we think thats a very.
Positive direction for the business.
And we've said for some time that that's been one of the challenges in our Tor chain clearly.
Which is just the opposite which is it's been a very.
On a singular.
For the most part.
Diversification in terms of where <unk> molecule, although ultimately ends up.
So this is a.
A positive trend in the industry, obviously, but.
But we've got alternatives and I guess the point I just want to make is <unk> is well situated to serve this.
And growing biofuel market.
I think we all have to agree that given the world that we're in and the desire for sustainability and renewable ability.
In the marketplace. Despite the fact this is a if you will in EU directive that's driving this growth and we believe it's here to stay I mean, we don't see this thing going backwards at all so clearly we need to adapt our.
And our ability to serve this growing market.
Understood. Thank you.
So in the context of some of these by refiners.
Europe processing CTO for direct biofuel production.
I completely respect that youre not willing to discuss specifics on your feedstock supply arrangements, but how firm are your CTO commitments in Europe for those assets are they similar to your U S contracts are.
Worst case do you have excess offtake under your U S contracts to supply our European assets of CTO or to begin become tight over there.
One thing we've always prided ourselves on Vincent is our relationship with our CTO suppliers.
Long standing strong relationships.
We've always had a vision that.
Given.
The nature of our pine.
Business, it's on our best interest to be very.
If you will engaged in in.
And CTO relationships on a broad based level so that at the end of the day, depending on market circumstances, we are in a position to process more CTO or if we need to we can sell CTO from time to time and an opportunity to play.
This is this is all kind of a part of our business makeup. It's a it's a real strategic advantages for great on and certainly on an advantage. When we have this new outlet in the form of biodiesel.
Okay perfect I appreciate that.
If I could ask one more I just I wanted to try to dig into price versus raws in polymers for a minute so on the fourth quarter price mix.
It looked like it was implied to be.
Down year over year, I know, we had some pretty drastic feedstock price increases off the lows of late in the quarter and those are typically passed through and then you announced the price increase in hsbc's around the start of the year. So can you just maybe refresh us on that price over raws dynamic and was at HSBC.
This increase adequate to cover our feedstock cost inflation.
And those contracts that are non raw material linked.
Well anytime.
On.
I can I can say this unequivocally because we've been doing this a long time on our polymer business.
Our price right strategy is real clear when it comes to.
Raw material pressure, we see.
We're going to get in front of this we're going to move the price up to reflect at least that raw material.
Increased that we know of and perhaps even raw material prices that we're anticipating in our price moves.
Time to time that could result in some margin lift in our business of course.
That's all part of <unk>.
This rate strategy in itself because it goes typically but those both ways.
Alright. Thank you good luck on the rest of the year.
Thank you so much. The next question comes from the line of John Roberts from UBS. Sir Your line is now open you May proceed.
Yes. Thank you.
Since <unk> was launched in China is that made in Taiwan.
And is that something that Sino Kevin LC, why can do as well or do you think the competition is going to be primarily other materials.
Yes.
So.
Ultimately the.
That part is a compound and we work with our partners to make the compound, but obviously the compound is founded on craton polymer.
I'm not going to say whether or not it's.
It's.
Specifically, a polymer that is made it only one location, but I will tell you in the case of this material yes. It was made in Taiwan.
Okay, and then on the biodiesel opportunity if the industry continues to grow.
Alright.
These guys become competitors for CTO eventually against you rather than just the opportunity for yourselves and materials.
Well theres kind of two channels to get to the biofuel, there's a CTO direct channel, which some employee and then there is a.
The hydrogenation of fatty acid channel. So I guess at the end of the day, it's one of those questions that.
Depends on I think like everything.
US chemical whether youre biodiesel or buy a refinery or do you always look for the most efficient way to satisfy the market need and our view is without knowing where this industry is going to evolve too.
Hydrogenation of the fatty acid looks to be a very.
Attractive way for people to satisfy the red two requirements, while at the same time being truly optimal in the value chain and the supply chain.
Thank you.
Thank you so much. The next question comes from the line of Chris Capps from loop capital markets. Sir Your line is now open you May proceed.
Yeah. So my question My follow up question was about the guidance.
Initial guidance for 2021.
You have a number of price increases on the table on the chemicals business the stronger demand environment.
And your own in the store.
Top line chart on page 10, it looks like.
You've sort of improved the market outlook for.
For sectors debt comprised maybe almost half of sales.
So I'm wondering if that's what's translating into.
Base business of up.
5% to seven percentage it seems like given.
The easy comparisons associated with Covid, given some of the momentum in on some of the traction on some of these new commercial innovations that maybe we could.
There could be upside.
I was just wondering how you thought about providing that guidance. If you go back a year ago you guys initial guidance pre COVID-19 for 'twenty 'twenty was I think 210 and you ended up doing $2 62. So are you just are you trying to take our posture.
Similar to what you did a year ago, presumably.
Any color on on that process would be helpful. Thanks.
Theres a lot of things, we do around here Chris.
As part of our business model, but forecasting. The next 12 months is one of the most difficult things to do as you well know so we have a very robust process, where we decide how we're going to look at the number of variables the risk the opportunities to come up with.
The requisite guidance that we try to provide so.
No.
What's unique of course about the the way in which we approach 2021 is there is a couple of things that need to be factored in one was of course, the careful like stub period, which need to be removed from last year's performance on looking at this year's full year performance and the second thing is this a pretty extraordinary turnaround. We do every six years and bear and so we wanted to call that out for investors to understand.
On that but beyond that.
Yes.
We're feeling like at the very least we ought to be able to deliver 5% to 7% business growth now I'll just say it of course, if the positive trends that we're all feeling right now and our business will remain intact over the course of the year I think there is an opportunity to improve on that yet more but we're not ready to say that yet it's still February.
Okay.
And then the other question I had was.
We have asked you this in meetings with investors so but.
World's evolving to want to get a current view, but in terms of your innovation platforms, which are the and theirs.
There's seemingly.
Seemingly needle moving kind of opportunities that you're starting to get traction on I'm. Just wondering if you could sort of rank what the.
What the in order what the ones you're most excited about.
Well I am excited about them, all because I understand the implement implications to each of our businesses from the standpoint of.
Driving our business growth objectives, but I mean, each one has their own story.
Clearly by axiom is potentially a platform in and itself and that's the way we're viewing it that's the way we're staffing it thats the way we are developing the potential for this.
For this.
<unk> and polymer in the case of the.
Innovations in the business look I mean, we're on a world where sustainability is becoming absolutely critical to People's business models and when you look at what Revolution is from the trees to begin with and then addressing the very shortfalls and the quality.
Kind of challenges we've had in the past, having now close that loop.
<unk> closed the color GAAP and close the stability GAAP.
That's a very good thing for us and I couldnt be more proud of our team for bringing that to market and it continues to exceed our expectations in terms of customer adoption and then the circuit plus technology I mean, if there's one thing we hear about if you are participating in the plastics industry is single use plastics and the problem that's caused societal sense and.
Here, we have a technology, which not only it can advance the use of plastics, where recycling, but it increases the productivity of the people. The very people that are trying to reuse plastics.
So that they don't have to separate otherwise on line polymers and we addressed that fundamentally we are circa plus so I can't help but be very excited about the potential of these innovations and then you referenced MSS we've been working on this for quite some time I'm sure you've heard from other people that try to innovate in the automobile sense Theres a long APA.
<unk> process are typically a very.
Risk averse, if you will community, but at the same time. It goes both ways. Once we are settled in a technology that that gives us some assurance that we're going to be able to build on it to grow further.
Alright, that's helpful and then while not in innovation I believe you have a polymer product that's used in.
Telecom.
<unk> cable and so I'm wondering if some of my companies that I follow are benefiting from that.
<unk> this burgeoning five super cycle and just wondering if your.
Similarly benefiting in your.
On your your product sales into the wire and cable industry and if you would see that as a.
A driver here over the next couple of years. Thanks, Yes, I mean, <unk> conversions and the need for cable gels as installation price, particularly in big subsea cables.
A very good business for us, we kind of put that quite frankly in our established business bucket.
Because we've been kind of leading in that space for many years.
Thank you.
At this time speakers, we don't have any questions on queue. You May proceed.
Thank you Dale.
I want to thank everybody. This morning for their time on their interest in great on.
And for our.
A question and answer.
Session. Thanks for your thoughtful questions there will be a replay of this call available. Later. This morning, you may access the replay by dialing 866 3584515.
This concludes our prepared comments this morning.
<unk>.
Yes.
This concludes the screen on Corporation fourth quarter 2020 earnings Conference call.
You may now disconnect.